Contents: 1. Learning Objectives 2. Questions for this topic 3. Lecture Slides
Lecturer: Dr Per Tronnes
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Introduction and Learning Objectives
At the end of this topic, you should:
LO1. Introduction to differences between rules-based accounting and principles- based accounting. LO2. Demonstrate principles, conventions, and assumptions that are consolidated in the Framework for the Preparation of Financial Statements.
Required Readings
Required Readings
Framework for the Preparation and Presentation of Financial Statements (Available on Moodle) Amendments to the Framework (Available on Moodle) Trotman, Gibbins & Carson (TGC) 5 th edition Chapter 6.1-6.3, 6.5-6.7 (inclusive)
The following information is taken from the accounts of Whisky-in-the-Jar Ltd. for the year-ended 31 December, 2010: $ Accounts receivable, 1 January, 2010 95,000 Accounts receivable, 31 December, 2010 65,000 Allowance for doubtful debts, 1 January, 2010 15,000 Allowance for doubtful debts, 31 December, 2010 7,000 Inventory, 1 January, 2010 90,000 Inventory, 31 December, 2010 110,000 Accounts Payable, 1 January, 2010 80,000 Accounts Payable, 31 December, 2010 60,000 Credit sales
400,000 Cash sales 110,000 Cost of goods sold 420,000 Bad debts expense 12,000
Required: (a) Calculate total cash received from customers for the year ending 31 December 2010. Use the traditional method for T-accounts (i.e. not the short-cut method) where applicable. Show all workings. [3 marks]
DO NOT WRITE OUTSIDE THE BOX
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(b) Write the journal entries to recognise bad debts expense and any bad debt write- off. [2 marks]
DO NOT WRITE OUTSIDE THE BOX
(c) With reference to the accounting concept of the matching principle, explain the rationale for creating a contra account (i.e. allowance for doubtful debts) for accounts receivable. [1 marks]
DO NOT WRITE OUTSIDE THE BOX
(d) With reference to the accounting concept of conservatism, explain the rationale for creating a contra account (i.e. allowance for doubtful debts) for accounts receivable. [1 marks]